You are Not Your Brother’s Keeper. Tax Liens and Joint Ownership of Real Property.

I cringe (figuratively speaking) when I hear of individuals who include friends and ancillary family members as joint owners of real property. Such as joint tenants in common for owning grandmother’s old house, etc.

This is joint ownership of real property with the co-owners each named on the real estate deed.  Such as “John Smith and Jane Doe, as tenants in common.” Or, “John Smith and Jane Doe, jointly with right of survivorship.”

[There are exceptions to my concern in certain cases (i) for married couples as joint owners and (ii) in states with joint “tenancy by the entirety” ownership (Georgia does not recognize tenancy by the entirety).]

Because real estate ownership is governed by publicly-recorded deed and lien records, jointly-owned property is a lightning rod for the other co-owners’ debts, judgments, unpaid income taxes, estate tax liens, etc.

Let’s assume Bill owns Atlanta undeveloped land with his distant nephew Pete. Pete owns 10% with Bill as the other 90% joint owner (joint tenants in common, to be exact). This is undeveloped land that belonged to Bill’s grandparents (Pete’s great-grandparents). Bill and Pete rarely visit the property.  It is merely a long-term, passive asset.

Bill typically remains unfamiliar with nephew Pete’s ongoing financial and tax affairs and has no idea Pete has not been paying his (Pete’s) income tax. Unknown to Bill is that the Georgia Department of Revenue has been racking up recorded unpaid tax liens against Pete (called a recorded Fi-Fa), with Pete’s unpaid tax debt continuing to increase with interest and penalties.

Bill’s 90% share is now on the hook. Although technically Bill is not liable for Pete’s tax liens. Nor is the value of Bill’s 90% portion of the land technically available to satisfy Pete’s liens. The reality for Bill is that the entire land is burdened by Pete’s tax liens.

On the other hand, Pete essentially has no concerns about his unpaid taxes or these liens. Pete, 27 years old, works part-time, has no money, etc.

Bill’s unfortunate reality is that no buyer will touch this land until Bill clears these tax liens. The Georgia Department of Revenue also has been  consistent with extending the duration of its recorded tax liens (called an “entry of nulla bona”).

Bill’s land over the years has increased in value. This results in Pete’s 10% share also increasing in value to the extent Georgia will likely demand its full claim for the unpaid taxes, penalties and interest in order to release the liens. These surmounting Georgia penalties and interest have transformed what started as nominal unpaid tax amounts into substantial issues. Bill has a costly problem.

The moral of this blog post.

Don’t — without thoughtful deliberation — become your brother’s keeper. Talk to your lawyer first about co-ownership of property. Possibly use an LLC. Or, a recorded written joint property agreement that allows a co-owner to charge the other owner’s portion of the property for these kinds of liens. Good legal advice is also an investment in tranquility.

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